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developments with three bedroom units for large households, and to determine if it is appropriate to increase the percentage of affordability to support units for very low and low income households. . Policy 16 — Similar to Program 16.2, this policy anticipates both a review and modification of the IZO for rental housing to conform with the Costa-Hawkins Act and a statement indicating that new rental development is strongly encouraged to meet the IZO by providing housing units affordable to extremely low, very low and low income households. . Program 17.1 — Anticipates a review and modification of the City's Lower Income Housing Fee (LIHF)to assure conformance with AB 1600 and other intended uses. In response to the above, the Growth Management Program was amended in October 2012 and a contract was recently awarded to conduct the LIHF nexus study, which will provide the basis upon which the City Council can review any fee adjustment. Staff received the first draft of the LIHF report and anticipates it will be presented to the City Council for adoption in August/September after review by the Housing Commission. Regarding the update to the IZO, staffs intent has been to have this generally track the LIHF so that it has the opportunity to receive feedback regarding LIHF flee impacts and alternative fee structures as they relate to obtaining inclusionary zoning units. As an example, if the LIHF study indicates that meeting the existing affordable housing need would require a significant fee increase, staff and the City Council may decide to look at other means of obtaining affordable housing rather than approving a substantial fee increase. Notwithstanding the benefits of this approach, the recent influx of development application for larger apartment projects, including California Center, St. Anton, and Auf der Maur, has magnified the IZO issues that were anticipated in the Housing Element. In general, the most significant issue regarding the IZO is that there is currently a disconnect between its requirement that 15% of all units in a new residential multi-family rental development be rent-restricted to very low (50% of the Area Median Income or AMI; currently $44,600 for a four person household) and low income households (80% of the AMI; currently $71,350 for a four person household). There is similar inconsistency between the IZO and the Palmer case which held that local inclusionary requirements requiring rent restricted units violate the Costa-Hawkins Act that allows landlords to set the initial rent for a new unit and to adjust rents to market levels whenever a unit is vacated (so-called "vacancy decontrol"). This disconnect is also evident in the City's Housing Site Development Standards and Design Guidelines which require compliance with the City's IZO and the "by right" aspects of sites zoned for high density rental housing. Finally, the City is expected to implement a range of Housing Element programs that should, if appropriately applied, lead to meeting state mandated and RHNA housing and affordable housing targets. However, absent strict IZO requirements, it is doubtful that new affordable housing units will approach these targets. Page 3 of 4